OMNICOM : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

EXECUTIVE SUMMARY
We are a strategic holding company providing advertising, marketing and
corporate communications services to clients through our branded networks and
agencies around the world. On a global, pan-regional and local basis, our
networks and agencies provide a comprehensive range of services in the following
fundamental disciplines: advertising, CRM, which includes CRM Consumer
Experience and CRM Execution & Support, public relations and healthcare. Our
business model was built and continues to evolve around our clients. While our
networks and agencies operate under different names and frame their ideas in
different disciplines, we organize our services around our clients. Our
fundamental business principle is that our clients' specific marketing
requirements are the central focus of how we structure our service offerings and
allocate our resources. This client-centric business model requires that
multiple agencies within Omnicom collaborate in formal and informal virtual
client networks utilizing our key client matrix organization structure. This
collaboration allows us to cut across our internal organizational structures to
execute our clients' marketing requirements in a consistent and comprehensive
manner. We use our client-centric approach to grow our business by expanding our
service offerings to existing clients, moving into new markets and obtaining new
clients. In addition, we pursue selective acquisitions of complementary
companies with strong entrepreneurial management teams that typically currently
serve or could serve our existing clients.
As a leading global advertising, marketing and corporate communications company,
we operate in all major markets and have a large and diverse client base. In
2019, our largest client represented 3.0% of revenue and our 100 largest
clients, which represent many of the world's major marketers, represented
approximately 51% of revenue. Our clients operate in virtually every sector of
the global economy with no one industry representing more than 14% of our
revenue in 2019. Although our revenue is generally balanced between the United
States and international markets and we have a large and diverse client base, we
are not immune to general economic downturns.
As described in more detail below, in 2019, revenue decreased $336.5 million, or
2.2%, compared to 2018. Changes in foreign exchange rates reduced revenue $315.9
million, or 2.1%, acquisition revenue, net of disposition revenue, reduced
revenue $445.1 million, or 2.9%, reflecting the disposition of certain
non-strategic businesses, and organic growth increased revenue $424.5 million,
or 2.8%.
Global economic conditions have a direct impact on our business and financial
performance. Adverse global or regional economic conditions pose a risk that our
clients may reduce, postpone or cancel spending on advertising, marketing and
corporate communications services, which would reduce the demand for our
services. Revenue is typically lower in the first and third quarters and higher
in the second and fourth quarters, reflecting client spending patterns during
the year and additional project work that usually occurs in the fourth quarter.
Additionally, certain global events targeted by major marketers for advertising
expenditures, such as the FIFA World Cup and the Olympics, and certain national
events, such as the U.S. election process, may affect our revenue
period-over-period in certain businesses. Typically, these events do not have a
material impact on our revenue in any period. In 2019, improved organic growth
in our advertising and media, CRM Consumer Experience and healthcare businesses
in North America was partially offset by negative performance and divestitures
primarily in our CRM Execution & Support disciplines. In Europe, while mixed by
market and discipline, modest organic growth primarily driven by our advertising
and media businesses was offset by the disposition of Sellbytel, our
European-based outsourced sales, service and support company, in the third
quarter of 2018, the negative impact of changes in foreign exchange rates and
negative performance in our CRM Consumer Experience businesses. The economic and
political conditions in the E.U., including the effects of Brexit, remain
uncertain and could negatively impact our businesses in the region. In Latin
America, continued unstable economic and political conditions in Brazil
contributed to our weak performance in the region, and the negative impacts of
foreign currency exchange rates and disposition activity combined to offset
modest organic growth in other countries in the region, including Chile and
Mexico. In Asia-Pacific, organic growth in most countries was offset by the
negative impact of changes in foreign exchange rates and negative performance in
China, which faced a difficult comparison due to strong organic growth in 2018.
Given the recent events in China and the related precautions being taken to
reduce the risk of a contagion, we are uncertain of the impact these events may
have on our businesses in China as well as the possibility that similar
precautions and other actions could extend outside the mainland. The political,
economic and fiscal issues facing the countries we operate in can cause economic
uncertainty and volatility; however, the impact on our business varies by
country. We monitor economic conditions closely, as well as client revenue
levels and other factors and, in response to reductions in our client revenue,
if necessary, we will take actions available to us to align our cost structure
and manage our working capital. There can be no assurance whether, or to what
extent, our efforts to mitigate any impact of future adverse economic
conditions, reductions in client revenue, changes in client creditworthiness and
other developments will be effective.
Certain business trends have had a positive impact on our business and industry.
These trends include clients increasingly expanding the focus of their brand
strategies from national markets to pan-regional and global markets and
integrating traditional and non-traditional marketing channels, as well as
utilizing new communications technologies and emerging digital platforms. As
clients increase their demands for marketing effectiveness and efficiency, they
continue to consolidate their business within one or a small number of service
providers in the pursuit of a single engagement covering all consumer touch
points. We have structured our business around these trends. We believe that our
key client matrix organization structure approach to collaboration and
integration of our services and solutions provides a competitive advantage to
our business in the past and we expect this to continue over the medium and long
term.

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Driven by our clients' continuous demand for more effective and efficient
marketing activities, we strive to provide an extensive range of advertising,
marketing and corporate communications services through various client-centric
networks that are organized to meet specific client objectives. These services
include, among others, advertising, branding, content marketing, corporate
social responsibility consulting, crisis communications, custom publishing, data
analytics, database management, digital/direct marketing, digital
transformation, entertainment marketing, experiential marketing, field
marketing, financial/corporate business-to-business advertising, graphic
arts/digital imaging, healthcare marketing and communications, in-store design,
interactive marketing, investor relations, marketing research, media planning
and buying, merchandising and point of sale, mobile marketing, multi-cultural
marketing, non-profit marketing, organizational communications, package design,
product placement, promotional marketing, public affairs, public relations,
retail marketing, sales support, search engine marketing, shopper marketing,
social media marketing and sports and event marketing.
In the near term, barring unforeseen events and excluding the impact of changes
in foreign exchange rates, because of continued improvement in operating
performance by many of our agencies and new business activities, we expect our
organic revenue to increase modestly for 2020 and over the long term to be in
excess of the weighted average nominal GDP growth in our major markets. We
expect to continue to identify acquisition opportunities intended to build upon
the core capabilities of our strategic disciplines and business platforms,
expand our operations in high-growth and emerging markets and enhance our
capabilities to leverage new technologies that are being used by marketers
today.
We continually evaluate our portfolio of businesses to identify areas for
investment and acquisition opportunities, as well as to identify non-strategic
or underperforming businesses for disposition. In the first quarter of 2019, we
disposed of certain businesses, primarily in our CRM Execution & Support
discipline.
Given our size and breadth, we manage our business by monitoring several
financial indicators. The key indicators that we focus on are revenue and
operating expenses. We analyze revenue growth by reviewing the components and
mix of the growth, including growth by principal regional market and marketing
discipline, the impact from foreign currency exchange rate changes, growth from
acquisitions, net of dispositions and growth from our largest clients. Operating
expenses are comprised of cost of services, selling, general and administrative
expenses, or SG&A, and depreciation and amortization.
In 2019, our revenue decreased 2.2% compared to 2018. Changes in foreign
exchange rates reduced revenue 2.1%, acquisition revenue, net of disposition
revenue, reduced revenue 2.9%, and organic growth increased revenue 2.8%. Across
our principal regional markets, the changes in revenue were: North America
increased 0.4%, Europe decreased 6.1%, Asia-Pacific decreased 3.6% and Latin
America decreased 11.8%. In North America, improved organic growth in the United
States and Canada was substantially offset by a decrease in revenue resulting
from disposition activity in the United States and the weakening of the Canadian
Dollar against the U.S. Dollar. Organic revenue growth in the United States was
led by our advertising and media, CRM Consumer Experience and healthcare
businesses, and was partially offset by a decrease in organic revenue growth
primarily in our CRM Execution & Support businesses. In Europe, modest organic
growth in the region, especially in the U.K. and Spain, was offset by the
weakening of substantially all currencies in the region against the U.S. Dollar,
disposition activity and negative performance in France. In Latin America, the
weakening of currencies in the region against the U.S. Dollar and negative
performance and disposition activity in Brazil offset modest organic growth in
Chile and Mexico. In Asia-Pacific, organic growth in most countries in the
region, especially Japan, New Zealand and India, was offset by the weakening of
most currencies in the region against the U.S. Dollar, disposition activity and
negative performance in China, which faced a difficult comparison due to strong
organic growth in 2018. The change in revenue in 2019, compared to 2018, in our
fundamental disciplines was: Advertising increased 2.1%, CRM Consumer Experience
decreased 0.7%, CRM Execution & Support decreased 28.0%, Public Relations
decreased 3.9% and Healthcare increased 9.4%.
We measure cost of services in two distinct categories: salary and service costs
and occupancy and other costs. As a service business, salary and service costs
make up a significant portion of our operating expenses and substantially all
these costs comprise the essential components directly linked to the delivery of
our services. Salary and service costs include employee compensation and
benefits, freelance labor and direct service costs, which include third-party
supplier costs and client-related travel costs. Occupancy and other costs
consist of the indirect costs related to the delivery of our services, including
office rent and other occupancy costs, equipment rent, technology costs, general
office expenses and other expenses.
SG&A expenses comprise third-party marketing costs, professional fees and
compensation and benefits and occupancy and other costs of our corporate and
executive offices, which includes group-wide finance and accounting, treasury,
legal and governance, human resource oversight and similar costs.
Operating expenses in 2019 decreased $325.3 million, or 2.5%, year-over-year,
primarily as a result of our disposition activity in 2019 and 2018, and the
weakening of substantially all foreign currencies against the U.S. Dollar.
Operating expenses in 2018 also included a net reduction of $29.0 million,
recorded in the third quarter of 2018, comprised of a $178.4 million reduction
related to the net gain on disposition of subsidiaries, partially offset by an
increase in operating expenses of $149.4 million related to charges incurred for
repositioning actions, which included $73.7 million in salary and service costs
for incremental severance and $73.5 million in occupancy and other costs for
office lease termination and consolidation.

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Salary and service costs, which tend to fluctuate with changes in revenue,
decreased $333.9 million, or 3.0%, in 2019 compared to 2018 due to our
disposition activity in 2019 and 2018, as well as the incremental severance
charge of $73.7 million recorded in the third quarter of 2018 that did not
affect 2019. Occupancy and other costs, which are less directly linked to
changes in revenue than salary and service costs, decreased $87.8 million, or
6.7%, in 2019 compared to 2018 due to our disposition activity in 2019 and 2018,
as well as the office lease termination and consolidation charge of $73.5
million recorded in the third quarter of 2018 that did not affect 2019.
Operating margin increased 0.2% period-over-period and earnings before interest,
taxes and amortization of intangible assets, or EBITA, margin increased 0.2%
period-over-period. The net decrease in operating expenses of $29.0 million in
2018 related to the net gain on disposition of subsidiaries partially offset by
the charges for the repositioning actions, increased both operating margin and
EBITA margin for 2018 by 0.2%. The year-over-year increase in margins primarily
reflects a change in the mix of our business during the current period,
including the positive effects following the disposition of underperforming
businesses in the current and prior year and our repositioning activity in the
third quarter of 2018, as well as our ongoing efforts to manage our cost
structure and increase the efficiency of the operations of our agencies.
In 2019, net interest expense decreased $25.2 million year-over-year to $184.0
million. Interest expense on debt decreased $14.7 million to $227.2 million,
primarily reflecting a reduction in interest expense from refinancing activity
in the third quarter of 2019 at lower interest rates including the retirement of
our $500 million 6.25% Senior Notes due 2019, or 2019 Notes, at maturity and the
settlement of the outstanding fixed-to-floating interest rate swaps, partially
offset by a loss on the partial redemption of $400 million of our $1 billion
4.45% Senior Notes due 2020, or 2020 Notes, and the issuance of €500 million
0.80% Senior Notes due July 8, 2027 and €500 million 1.40% Senior Notes due
July 8, 2031, collectively the Euro Notes (see Note 7 to the consolidated
financial statements). Interest income in 2019 increased $3.1 million
year-over-year to $60.3 million due to higher cash balances at our treasury
centers.
Our effective tax rate for 2019 increased slightly year-over-year to 26.0% from
25.6%. The effective tax rate for 2018 reflects the impact of a lower tax rate
on the net gain on disposition of subsidiaries, substantially offset by an
increase in income tax expense for an adjustment to the provisional amounts
related to the Tax Act.
Net income - Omnicom Group Inc. in 2019 increased, due to the factors described
above, $12.7 million, or 1.0%, to $1,339.1 million from $1,326.4 million in
2018. The net gain on disposition of subsidiaries and repositioning charges,
after the allocated share of $6.9 million to noncontrolling interests, and the
additional income tax expense from the finalization of the provisional estimate
of the effect of the Tax Act, increased net income - Omnicom Group Inc. in 2018
by $18.2 million. Diluted net income per share - Omnicom Group Inc. increased
3.9% to $6.06 in 2019, compared to $5.83 in 2018, due to the factors described
above, as well as the impact of the reduction in our weighted average common
shares outstanding resulting from repurchases of our common stock, net of shares
issued for restricted stock awards, stock option exercises and the employee
stock purchase plan. The net gain on disposition of subsidiaries and
repositioning charges net of the additional income tax expense from the
finalization of the provisional estimate of the effect of the Tax Act, increased
diluted net income per share - Omnicom Group Inc. in 2018 by $0.08, and Non-GAAP
diluted net income per share - Omnicom Group Inc. increased 5.4% in 2019
compared to 2018 adjusted for these items.
CRITICAL ACCOUNTING POLICIES
The following summary of our critical accounting policies provides a better
understanding of our financial statements and the related discussion in this
MD&A. We believe that the following policies may involve a higher degree of
judgment and complexity in their application than most of our accounting
policies and represent the critical accounting policies used in the preparation
of our financial statements. Readers are encouraged to consider this summary
together with our financial statements and the related notes, including Note 2,
for a more complete understanding of the critical accounting policies discussed
below.
Estimates
We prepare our financial statements in conformity with U.S. GAAP and are
required to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. We use a fair
value approach in testing goodwill for impairment and when evaluating our equity
method investments to determine if an other-than-temporary impairment has
occurred. Actual results could differ from those estimates and assumptions.
Acquisitions and Goodwill
We have made and expect to continue to make selective acquisitions. The
evaluation of potential acquisitions is based on various factors, including
specialized know-how, reputation, geographic coverage, competitive position and
service offerings of the target businesses, as well as our experience and
judgment.

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Our acquisition strategy is focused on acquiring the expertise of an assembled
workforce in order to continue to build upon the core capabilities of our
various strategic business platforms and agency brands through the expansion of
their geographic reach or their service capabilities to better serve our
clients. Additional key factors we consider include the competitive position and
specialized know-how of the acquisition targets. Accordingly, as is typical in
most service businesses, a substantial portion of the assets we acquire are
intangible assets primarily consisting of the know-how of the personnel, which
is treated as part of goodwill and under U.S. GAAP is not required to be valued
separately. For each acquisition, we undertake a detailed review to identify
other intangible assets that are required to be valued separately. A significant
portion of the identifiable intangible assets acquired is derived from customer
relationships, including the related customer contracts, as well as trade names.
In valuing these identified intangible assets, we typically use an income
approach and consider comparable market participant measurements.
We evaluate goodwill for impairment at least annually at June 30 and whenever
events or circumstances indicate the carrying value may not be recoverable.
Under FASB ASC Topic 350, Intangibles - Goodwill and Other, we have the option
of either assessing qualitative factors to determine whether it is
more-likely-than-not that the carrying value of our reporting units exceeds
their respective fair value or proceeding directly to the goodwill impairment
test. Although not required, we performed the annual impairment test and
compared the fair value of each of our reporting units to its respective
carrying value, including goodwill. We identified our regional reporting units
as components of our operating segments, which are our five agency networks. The
regional reporting units and practice areas of each agency network monitor the
performance and are responsible for the agencies in their region. The regional
reporting units report to the segment managers and facilitate the administrative
and logistical requirements of our client-centric strategy for delivering
services to clients in their regions. We have concluded that, for each of our
operating segments, their regional reporting units had similar economic
characteristics and should be aggregated for purposes of testing goodwill for
impairment at the operating segment level. Our conclusion was based on a
detailed analysis of the aggregation criteria set forth in FASB ASC Topic 280,
Segment Reporting, and in FASB ASC Topic 350. Consistent with our fundamental
business strategy, the agencies within our regional reporting units serve
similar clients in similar industries, and in many cases the same clients. In
addition, the agencies within our regional reporting units have similar economic
characteristics. The main economic components of each agency are employee
compensation and related costs and direct service costs and occupancy and other
costs, which include rent and occupancy costs, technology costs that are
generally limited to personal computers, servers and off-the-shelf software and
other overhead expenses. Finally, the expected benefits of our acquisitions are
typically shared by multiple agencies in various regions as they work together
to integrate the acquired agency into our virtual client network strategy.
Goodwill Impairment Review - Estimates and Assumptions
We use the following valuation methodologies to determine the fair value of our
reporting units: (1) the income approach, which utilizes discounted expected
future cash flows, (2) comparative market participant multiples for EBITDA
(earnings before interest, taxes, depreciation and amortization) and (3) when
available, consideration of recent and similar acquisition transactions.
In applying the income approach, we use estimates to derive the discounted
expected cash flows ("DCF") for each reporting unit that serves as the basis of
our valuation. These estimates and assumptions include revenue growth and
operating margin, EBITDA, tax rates, capital expenditures, weighted average cost
of capital and related discount rates and expected long-term cash flow growth
rates. All of these estimates and assumptions are affected by conditions
specific to our businesses, economic conditions related to the industry we
operate in, as well as conditions in the global economy. The assumptions that
have the most significant effect on our valuations derived using a DCF
methodology are: (1) the expected long-term growth rate of our reporting units'
cash flows and (2) the weighted average cost of capital ("WACC") for each
reporting unit.
The assumptions used for the long-term growth rate and WACC in our evaluations
as of June 30, 2019 and 2018 were:
                              2019                    2018
Long-Term Growth Rate        3.5%                    4%
WACC                    10.1% - 10.6%            10.5% - 11.1%


Long-term growth rate represents our estimate of the long-term growth rate for
our industry and the markets of the global economy we operate in. For the past
ten years, the average historical revenue growth rate of our reporting units and
the Average Nominal GDP, or NGDP, growth of the countries comprising the major
markets that account for substantially all of our revenue was approximately 3.2%
and 3.6%, respectively. We considered this history when determining the
long-term growth rates used in our annual impairment test at June 30, 2019. We
believe marketing expenditures over the long term have a high correlation to
NGDP. Based on our historical performance, we also believe that our long-term
growth rate will exceed NGDP growth in the markets we operate in, which are
similar across our reporting units. For our annual test as of June 30, 2019, we
used an estimated long-term growth rate of 3.5%.

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When performing the annual impairment test at June 30, 2019 and estimating the
future cash flows of our reporting units, we considered the current
macroeconomic environment, as well as industry and market specific conditions at
mid-year 2019. In the first half of 2019, our revenue increased 2.7%, which
excluded our net disposition activity and the impact from changes in foreign
exchange rates. While our businesses in Europe had improved performance as of
June 30, 2019, the continuing uncertain economic and political conditions in the
E.U. were further complicated by the United Kingdom's ongoing negotiations with
the European Council to withdraw from the E.U. During the first half of 2019,
weakness in certain Latin American economies had the potential to affect our
near-term performance in that region. We considered the effect of these
conditions in our annual impairment test.
The WACC is comprised of: (1) a risk-free rate of return, (2) a business risk
index ascribed to us and to companies in our industry comparable to our
reporting units based on a market derived variable that measures the volatility
of the share price of equity securities relative to the volatility of the
overall equity market, (3) an equity risk premium that is based on the rate of
return on equity of publicly traded companies with business characteristics
comparable to our reporting units, and (4) a current after-tax market rate of
return on debt of companies with business characteristics similar to our
reporting units, each weighted by the relative market value percentages of our
equity and debt.
Our five reporting units vary in size with respect to revenue and the amount of
debt allocated to them. These differences drive variations in fair value among
our reporting units. In addition, these differences as well as differences in
book value, including goodwill, cause variations in the amount by which fair
value exceeds book value among the reporting units. The reporting unit goodwill
balances and debt vary by reporting unit primarily because our three legacy
agency networks were acquired at the formation of Omnicom and were accounted for
as a pooling of interests that did not result in any additional debt or goodwill
being recorded. The remaining two agency networks were built through a
combination of internal growth and acquisitions that were accounted for using
the acquisition method and as a result, they have a relatively higher amount of
goodwill and debt.
Goodwill Impairment Review - Conclusion
Based on the results of our impairment test, we concluded that goodwill at
June 30, 2019 was not impaired, because the fair value of each of our reporting
units was substantially in excess of its respective net book value. The minimum
decline in fair value that one of our reporting units would need to experience
in order to fail the goodwill impairment test was approximately 65%.
Notwithstanding our belief that the assumptions we used for WACC and long-term
growth rate in our impairment testing are reasonable, we performed a sensitivity
analysis for each of our reporting units. The results of this sensitivity
analysis on our impairment test as of June 30, 2019 revealed that if the WACC
increased by 1% and/or the long-term growth rate decreased by 1%, the fair value
of each of our reporting units would continue to be substantially in excess of
its respective net book value and would pass the impairment test.
We will continue to perform our impairment test at the end of the second quarter
of each year unless events or circumstances trigger the need for an interim
impairment test. The estimates used in our goodwill impairment test do not
constitute forecasts or projections of future results of operations, but rather
are estimates and assumptions based on historical results and assessments of
macroeconomic factors affecting our reporting units as of the valuation date. We
believe that our estimates and assumptions are reasonable, but they are subject
to change from period to period. Actual results of operations and other factors
will likely differ from the estimates used in our discounted cash flow
valuation, and it is possible that differences could be significant. A change in
the estimates we use could result in a decline in the estimated fair value of
one or more of our reporting units from the amounts derived as of our latest
valuation and could cause us to fail our goodwill impairment test if the
estimated fair value for the reporting unit is less than the carrying value of
the net assets of the reporting unit, including its goodwill. A large decline in
estimated fair value of a reporting unit could result in a non-cash impairment
charge and may have an adverse effect on our results of operations and financial
condition.
Subsequent to the annual impairment test at June 30, 2019 and considering our
operating performance in the second half of the year, there were no events or
circumstances that triggered the need for an interim impairment test. Additional
information about acquisitions and goodwill appears in Notes 2, 5 and 6 to the
consolidated financial statements.
Revenue Recognition
Effective January 1, 2018, we adopted ASC 606. Under ASC 606, revenue is
recognized when a customer obtains control of promised goods or services (the
performance obligation) in an amount that reflects the consideration we expect
to receive in exchange for those goods or services (the transaction price). We
recognize revenue from contracts with customers that are based on statements of
work that are typically separately negotiated with the clients by our individual
agencies, including agency networks, and our agencies execute tens of thousands
of contracts per year. We measure revenue by estimating the transaction price
based on the consideration specified in the client arrangement. Revenue is
recognized as the performance obligations are satisfied. Our revenue is
primarily derived from the planning and execution of advertising communications
and marketing services in the following fundamental disciplines: advertising,
which includes creative advertising services and strategic media planning and
buying services, CRM, which includes CRM Consumer Experience and CRM Execution &
Support, public relations

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and healthcare advertising. Our client contracts are primarily fees for service
on a rate per hour or per project basis. Revenue is recorded net of sales, use
and value added taxes.
Performance Obligations - In substantially all our disciplines, the performance
obligation is to provide advisory and consulting services at an agreed-upon
level of effort to accomplish the specified engagement. Our client contracts are
comprised of diverse arrangements involving fees based on any one or a
combination of the following: an agreed fee or rate per hour for the level of
effort expended by our employees; commissions based on the client's spending for
media purchased from third parties; qualitative or quantitative incentive
provisions specified in the contract; and reimbursement for third-party costs
that we are required to include in revenue when we control the vendor services
related to these costs and we act as principal. The transaction price of a
contract is allocated to each distinct performance obligation based on its
relative stand-alone selling price and is recognized as revenue when, or as, the
customer receives the benefit of the performance obligation. Clients typically
receive and consume the benefit of our services as they are performed.
Substantially all our client contracts provide that we are compensated for
services performed to date and allow for cancellation by either party on short
notice, typically 90 days, without penalty.
Generally, our short-term contracts, which normally take 30 to 90 days to
complete, are performed by a single agency and consist of a single performance
obligation. As a result, we do not consider the underlying services as separate
or distinct performance obligations because our services are highly
interrelated, occur in close proximity, and the integration of the various
components of a marketing message is essential to overall service. In certain of
our long-term client contracts, which have a term of up to one year, the
performance obligation is a stand-ready obligation, because we provide a
constant level of similar services over the term of the contract. In other
long-term contracts, when our services are not a stand-ready obligation, we
consider our services distinct performance obligations and allocate the
transaction price to each separate performance obligation based on its
stand-alone selling price, including contracts for strategic media planning and
buying services, which are considered to be multiple performance obligations,
and we allocate the transaction price to each distinct service based on the
staffing plan and the stand-alone selling price. In substantially all of our
creative services contracts we have distinct performance obligations for our
services, including certain creative services contracts where we act as an agent
and arrange, at the client's direction, for third parties to perform studio
production efforts.
Revenue Recognition Methods - A substantial portion of our revenue is recognized
over time, as the services are performed, because the client receives and
consumes the benefit of our performance throughout the contract period, or we
create an asset with no alternative use and are contractually entitled to
payment for our performance to date in the event the client terminates the
contract for convenience. For these over time client contracts, other than when
we have a stand-ready obligation to perform services, revenue is recognized over
time using input measures that correspond to the level of staff effort expended
to satisfy the performance obligation on a rate per hour or equivalent basis.
For client contracts when we have a stand-ready obligation to perform services
on an ongoing basis over the life of the contract, typically for periods up to
one year, where the scope of these arrangements is broad and there are no
significant gaps in performing the services, we recognize revenue using a
time-based measure resulting in a straight-line revenue recognition. From time
to time, there may be changes in the client service requirements during the term
of a contract and the changes could be significant. These changes are typically
negotiated as new contracts covering the additional requirements and the
associated costs, as well as additional fees for the incremental work to be
performed.
To a lesser extent, for certain other contracts where our performance
obligations are satisfied in phases, we recognize revenue over time using
certain output measures based on the measurement of the value transferred to the
customer, including milestones achieved. Where the transaction price or a
portion of the transaction price is derived from commissions based on a
percentage of purchased media from third parties, the performance obligation is
not satisfied until the media is run and we have an enforceable contract
providing a right to payment. Accordingly, revenue for commissions is recognized
at a point in time, typically when the media is run, including when it is not
subject to cancellation by the client or media vendor.
Principal vs. Agent - In substantially all our businesses, we incur third-party
costs on behalf of clients, including direct costs and incidental, or
out-of-pocket costs. Third-party direct costs incurred in connection with the
creation and delivery of advertising or marketing communication services
include, among others: purchased media, studio production services, specialized
talent, including artists and other freelance labor, event marketing supplies,
materials and services, promotional items, market research and third-party data
and other related expenditures. Out-of-pocket costs include, among others:
transportation, hotel, meals and telecommunication charges incurred by us in the
course of providing our services. Billings related to out-of-pocket costs are
included in revenue since we control the goods or services prior to delivery to
the client.
However, the inclusion of billings related to third-party direct costs in
revenue depends on whether we act as a principal or as an agent in the client
arrangement. In most of our businesses, including advertising, which also
includes studio production efforts and media planning and buying services,
public relations, healthcare advertising and most of our CRM Consumer Experience
businesses, we act as an agent and arrange, at the client's direction, for third
parties to perform certain services. In these cases, we do not control the goods
or services prior to the transfer to the client. As a result, revenue is
recorded net of these costs, equal to the amount retained for our fee or
commission.

                                       12
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In certain businesses we may act as principal when contracting for third-party
services on behalf of our clients. In our events business and most of our CRM
Execution & Support businesses, including field marketing and certain specialty
marketing businesses, we act as principal because we control the specified goods
or services before they are transferred to the client and we are responsible for
providing the specified goods or services, or we are responsible for directing
and integrating third-party vendors to fulfill our performance obligation at the
agreed upon contractual price. In such arrangements, we also take pricing risk
under the terms of the client contract. In certain specialty media buying
business, we act as principal when we control the buying process for the
purchase of the media and contract directly with the media vendor. In these
arrangements, we assume the pricing risk under the terms of the client contract.
When we act as principal, we include billable amounts related to third-party
costs in the transaction price and record revenue over time at the gross amount
billed, including out-of-pocket costs, consistent with the manner that we
recognize revenue for the underlying services contract. However, in media buying
contracts where we act as principal, we recognize revenue at a point in time,
typically when the media is run, including when it is not subject to
cancellation by the client or media vendor.
Variable Consideration - Some of our client arrangements include variable
consideration provisions, which include performance incentives, tiered
commission structures and vendor rebates in certain markets outside of the
United States. Variable consideration is estimated and included in total
consideration at contract inception based on either the expected value method or
the most likely outcome method. These estimates are based on historical award
experience, anticipated performance and other factors known at the time.
Performance incentives are typically recognized in revenue over time. Variable
consideration for our media businesses in certain international markets includes
rebate revenue and is recognized when it is probable that the media will be run,
including when it is not subject to cancellation by the client. In addition,
when we receive rebates or credits from vendors for transactions entered into on
behalf of clients, they are remitted to the clients in accordance with
contractual requirements or retained by us based on the terms of the client
contract or local law. Amounts passed on to clients are recorded as a liability
and amounts retained by us are recorded as revenue when earned, which is
typically when the media is run.
NEW ACCOUNTING STANDARDS
See Note 22 to the consolidated financial statements for information on the
adoption of new accounting standards and accounting standards not yet adopted.


                                       13
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RESULTS OF OPERATIONS - 2019 Compared to 2018 (in millions).

                                                                           Year Ended December 31,
                                                                           2019                2018
Revenue                                                               $  14,953.7          $ 15,290.2
Operating Expenses:
Salary and service costs                                                 10,972.2            11,306.1
Occupancy and other costs                                                 1,221.8             1,309.6
Net gain on disposition of subsidiaries                                         -              (178.4)
Cost of services                                                         12,194.0            12,437.3
Selling, general and administrative expenses                                405.9               455.4
Depreciation and amortization                                               231.5               264.0
                                                                         12,831.4            13,156.7
Operating Profit                                                          2,122.3             2,133.5
Operating Margin - %                                                         14.2  %             14.0  %

Interest Expense                                                            244.3               266.4
Interest Income                                                              60.3                57.2

Income Before Income Taxes and Income From Equity Method Investments 1,938.3

             1,924.3

Income Tax Expense                                                          504.4               492.7
Income From Equity Method Investments                                         2.0                 8.9
Net Income                                                                1,435.9             1,440.5
Net Income Attributed To Noncontrolling Interests                            96.8               114.1
Net Income - Omnicom Group Inc.                                       $   

1,339.1 $ 1,326.4

Our 2018 results include the effect of the net gain on disposition of
subsidiaries of $178.4 million and repositioning charges of $149.4 million,
after the allocation of $6.9 million to noncontrolling interests, and the
additional income expense of $3.9 million from the finalization of the
provisional estimate of the effect of the Tax Act, substantially offset by the
impact of a lower tax rate on the net gain on disposition of subsidiaries. The
following discussion of our results of operations compares 2019 to 2018 as
reported and adjusted for the effects of these transactions. See page 18 for the
reconciliation of the adjusted 2018 amounts and Note 13 to the consolidated
financial statements.
Non-GAAP Financial Measures - EBITA and EBITA Margin
We use EBITA and EBITA Margin as additional operating performance measures that
exclude the non-cash amortization expense of intangible assets, which primarily
consists of amortization of intangible assets arising from acquisitions. We
define EBITA as earnings before interest, taxes and amortization of intangible
assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are
Non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful
measures for investors to evaluate the performance of our business. Non-GAAP
financial measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with U.S. GAAP.
Non-GAAP financial measures reported by us may not be comparable to similarly
titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of net income -
Omnicom Group Inc. to EBITA and EBITA Margin for the for the periods presented
(in millions):
                                                                            Year Ended December 31,
                                                                            2019                2018
Net Income - Omnicom Group Inc.                                        $   1,339.1          $  1,326.4
Net Income Attributed To Noncontrolling Interests                             96.8               114.1
Net Income                                                                 1,435.9             1,440.5
Income From Equity Method Investments                                          2.0                 8.9
Income Tax Expense                                                           504.4               492.7
Income Before Income Taxes and Income From Equity Method Investments       1,938.3             1,924.3
Interest Expense                                                             244.3               266.4
Interest Income                                                               60.3                57.2
Operating Profit                                                           2,122.3             2,133.5
Add back: Amortization of intangible assets                                   83.8               102.5
Earnings before interest, taxes and amortization of intangible assets
("EBITA")                                                              $   2,206.1          $  2,236.0

Revenue                                                                $  14,953.7          $ 15,290.2
EBITA                                                                  $   2,206.1          $  2,236.0
EBITA Margin - %                                                              14.8  %             14.6  %



                                       14

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Revenue

In 2019, revenue decreased $336.5 million, or 2.2%, to $14,953.7 million from
$15,290.2 million in 2018. Changes in foreign exchange rates reduced revenue
$315.9 million, acquisition revenue, net of disposition revenue, reduced revenue
$445.1 million, and organic growth increased revenue $424.5 million. The impact
of changes in foreign exchange rates reduced revenue 2.1%, or $315.9 million,
primarily resulting from the weakening of substantially all foreign currencies,
especially the Euro, British Pound, Australian Dollar, Brazilian Real and
Canadian Dollar against the U.S. Dollar.
The components of revenue change in the United States ("Domestic") and the
remainder of the world ("International") were (in millions):
                                                Total                                                Domestic                                  International
                                          $                 %                $                 %                $                 %
December 31, 2018                   $ 15,290.2                          $ 7,999.8                          $ 7,290.4
Components of revenue change:
Foreign exchange rate impact            (315.9)           (2.1) %               -               -  %          (315.9)           (4.3) %
Acquisition revenue, net of
disposition revenue                     (445.1)           (2.9) %          (180.6)           (2.3) %          (264.5)           (3.6) %
Organic growth                           424.5             2.8  %           213.8             2.7  %           210.7             2.9  %
December 31, 2019                   $ 14,953.7            (2.2) %       $ 8,033.0             0.4  %       $ 6,920.7            (5.1) %


The components and percentages are calculated as follows:
•The foreign exchange impact is calculated by translating the current period's
local currency revenue using the prior period average exchange rates to derive
current period constant currency revenue (in this case $15,269.6 million for the
Total column). The foreign exchange impact is the difference between the current
period revenue in U.S. Dollars and the current period constant currency revenue
($14,953.7 million less $15,269.6 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months
prior to the acquisition date by aggregating the comparable prior period revenue
of acquisitions through the acquisition date. As a result, acquisition revenue
excludes the positive or negative difference between our current period revenue
subsequent to the acquisition date and the comparable prior period revenue and
the positive or negative growth after the acquisition is attributed to organic
growth. Disposition revenue is calculated as if the disposition occurred twelve
months prior to the disposition date by aggregating the comparable prior period
revenue of dispositions through the disposition date. The acquisition revenue
and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact,
and the acquisition revenue, net of disposition revenue components from total
revenue growth.
•The percentage change is calculated by dividing the individual component amount
by the prior period revenue base of that component ($15,290.2 million for the
Total column).
Changes in the value of foreign currencies against the U.S. Dollar affect our
results of operations and financial position. For the most part, because the
revenue and expense of our foreign operations are both denominated in the same
local currency, the economic impact on operating margin is minimized. Assuming
exchange rates at February 10, 2020 remain unchanged, we estimate the impact of
changes in foreign exchange rates to decrease revenue in the first quarter of
2020 by approximately 0.5% and will have a marginal negative impact for the
remainder of 2020.
Revenue and organic growth in our principal regional markets were (in millions):
                                         Year Ended December 31,
                               2019             2018          $ Change             % Organic Growth
Americas:
North America              $  8,478.8       $  8,442.5       $   36.3                         2.8  %
Latin America                   403.4            457.5          (54.1)                       (0.2) %
EMEA:
Europe                        4,107.4          4,375.4         (268.0)                        3.1  %
Middle East and Africa          314.6            304.4           10.2                         6.5  %
Asia-Pacific                  1,649.5          1,710.4          (60.9)                        2.2  %
                           $ 14,953.7       $ 15,290.2       $ (336.5)                        2.8  %




                                       15

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Revenue in Europe, which includes our primary markets of the U.K. and the Euro
Zone, decreased $268.0 million in 2019 as compared to the prior year. Revenue in
the U.K., representing 9.6% of total revenue, decreased $23.7 million, primarily
due to the weakening of the British Pound against the U.S. Dollar. Revenue in
Continental Europe, which comprises the Euro Zone and the other European
countries, representing 17.9% of total revenue, decreased $244.3 million,
primarily due to disposition activity and the unfavorable impact from changes in
foreign exchange rates.
In North America, improved organic growth in the United States and Canada was
substantially offset by a decrease in revenue resulting from disposition
activity in the United States and the weakening of the Canadian Dollar against
the U.S. Dollar. Organic revenue growth in the United States was led by our
advertising and media, CRM Consumer Experience and healthcare businesses, and
was partially offset by a decrease in organic revenue growth primarily in our
CRM Execution & Support businesses. In Europe, modest organic growth in the
region, especially in the U.K. and Spain, was offset by the weakening of
substantially all currencies in the region against the U.S. Dollar, disposition
activity and negative performance in France. In Latin America, the weakening of
currencies in the region against the U.S. Dollar and negative performance and
disposition activity in Brazil offset modest organic growth in Chile and Mexico.
In Asia-Pacific, organic growth in most countries in the region, especially
Japan, New Zealand and India, was offset by the weakening of most currencies in
the region against the U.S. Dollar, disposition activity and negative
performance in China, which faced a difficult comparison due to strong organic
growth in 2018.
In the normal course of business, our agencies both gain and lose business from
clients each year due to a variety of factors. The net change in 2019 was an
overall gain in new business. Under our client-centric approach, we seek to
broaden our relationships with all of our clients. In 2019 and 2018, our largest
client represented 3.0% of revenue. Our ten largest and 100 largest clients
represented 19.6% and 51.3% of revenue in 2019, respectively, and 19.1% and
50.7% of revenue in 2018, respectively.
In an effort to monitor the changing needs of our clients and to further expand
the scope of our services to key clients, we monitor revenue across a broad
range of disciplines and group them into the following categories: advertising,
CRM, which includes CRM Consumer Experience and CRM Execution & Support, public
relations and healthcare.
Revenue and organic growth by discipline were (in millions):
                                                                            

Year Ended December 31,

                                                         2019                                                       2018                            2019 vs. 2018               2019
                                                                   % of                                    % of                 $
                                                 $                Revenue                $                Revenue            Change                 % Organic Growth
Advertising                                $  8,451.7                56.5  %       $  8,281.0                54.2  %       $  170.7                            4.5  %
CRM Consumer Experience                       2,610.0                17.5  %          2,629.6                17.1  %          (19.6)                           1.6  %
CRM Execution & Support                       1,361.2                 9.1  %          1,891.6                12.4  %         (530.4)                          (3.2) %
Public Relations                              1,378.9                 9.2  %          1,435.1                 9.4  %          (56.2)                          (2.0) %
Healthcare                                    1,151.9                 7.7  %          1,052.9                 6.9  %           99.0                            9.5  %
                                           $ 14,953.7                              $ 15,290.2                              $ (336.5)                           2.8  %


We provide services to clients that operate in various industry sectors. Revenue
by sector was:
                                         Year Ended December 31,
                                              2019               2018
Food and Beverage                                      13  %     13  %
Consumer Products                                       9  %      9  %
Pharmaceuticals and Health Care                        14  %     13  %
Financial Services                                      8  %      8  %
Technology                                              7  %      8  %
Auto                                                   10  %     10  %
Travel and Entertainment                                6  %      6  %
Telecommunications                                      5  %      5  %
Retail                                                  5  %      6  %
Other                                                  23  %     22  %




                                       16

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Operating Expenses
Operating expenses were (in millions):
                                                                    Year 

Ended December 31,

                                                  2019                                                         2018                                                    2019 vs. 2018
                                                            % of                                          % of                       $                  %
                                          $                Revenue                      $                Revenue                  Change              Change
Revenue                             $ 14,953.7                                    $ 15,290.2                                    $ (336.5)                (2.2) %
Operating Expenses:
Salary and service costs              10,972.2                73.4  %               11,306.1                73.9  %               (333.9)                (3.0) %
Occupancy and other costs              1,221.8                 8.2  %                1,309.6                 8.6  %                (87.8)                (6.7) %
Net gain on disposition of
subsidiaries                                 -                   -  %                 (178.4)               (1.2) %                178.4
Cost of services                      12,194.0                                      12,437.3                                      (243.3)
Selling, general and administrative
expenses                                 405.9                 2.7  %                  455.4                 3.0  %                (49.5)               (10.9) %
Depreciation and amortization            231.5                 1.5  %                  264.0                 1.7  %                (32.5)               (12.3) %
                                      12,831.4                85.8  %               13,156.7                86.0  %               (325.3)                (2.5) %
Operating Profit                    $  2,122.3                14.2  %             $  2,133.5                14.0  %             $  (11.2)                (0.5) %


Operating expenses in 2019 decreased $325.3 million, or 2.5%, year-over-year,
primarily as a result of our disposition activity in 2019 and 2018, and the
weakening of substantially all foreign currencies against the U.S. Dollar.
Operating expenses for 2018 also included a net reduction of $29.0 million,
comprised of a $178.4 million reduction for the impact of the net gain on
disposition of subsidiaries, partially offset by an increase in operating
expenses of $149.4 million for repositioning charges, which included $73.7
million in salary and service costs for incremental severance and $73.5 million
in occupancy and other costs for office lease termination and consolidation.
Salary and service costs, which tend to fluctuate with changes in revenue,
decreased $333.9 million, or 3.0%, in 2019 compared to 2018 due to our
disposition activity in 2019 and 2018, as well as the incremental severance
charge of $73.7 million recorded in 2018 that did not affect 2019. Occupancy and
other costs, which are less directly linked to changes in revenue than salary
and service costs, decreased $87.8 million, or 6.7%, in 2019 compared to 2018
due to our disposition activity in 2019 and 2018 the office lease termination
and consolidation charge of $73.5 million recorded in 2018 that did not affect
2019. Operating margin increased 0.2% to 14.2% period-over-period and EBITA
margin increased 0.2% period-over-period to 14.8%. The net decrease in operating
expenses of $29.0 million in 2018 related to the net gain on disposition of
subsidiaries partially offset by the charges for the repositioning actions,
increased both operating margin and EBITA margin for 2018 by 0.2%. Adjusting for
the net decrease of $29.0 million in 2018 in operating expenses, Non-GAAP
operating margin for 2019 increased to 14.2% from 13.8% in 2018 and adjusted
EBITA margin for 2019 increased to 14.8% from 14.4% in 2018. The year-over-year
increase primarily reflects a change in the mix of our business during the
current period, including the positive effects following the disposition of
underperforming businesses in the current and prior year and our repositioning
activity in the third quarter of 2018, as well as our ongoing efforts to manage
our cost structure and increase the efficiency of the operations of our
agencies.
Net Interest Expense
In 2019, net interest expense decreased $25.2 million year-over-year to $184.0
million. In 2019, interest expense on debt decreased $14.7 million to $227.2
million, primarily reflecting a reduction in interest expense from refinancing
activity in the third quarter of 2019 at lower interest rates, including the
maturity and retirement of the 2019 Notes and the settlement of the outstanding
fixed-to-floating interest rate swaps, partially offset by a loss on the partial
redemption of the 2020 Notes and the issuance of the Euro Notes (see Note 7 to
the consolidated financial statements). Interest income in 2019 increased $3.1
million year-over-year to $60.3 million due to higher cash balances at our
treasury centers.
Income Taxes
Our effective tax rate for 2019 increased slightly year-over-year to 26.0% from
25.6%. The effective tax rate for 2019 includes a reduction of $10.8 million
primarily from the net favorable settlement of uncertain tax positions in the
second quarter of 2019. The effective tax rate for 2018 reflects a net increase
of $3.9 million related to an increase in income tax expense for an adjustment
to the provisional amounts related to the Tax Act, substantially offset by the
impact of a lower tax rate on the net gain on disposition of subsidiaries. For
2020, we expect our effective tax rate to be between 26.5% and 27.0% before the
effect, if any, from the tax impact of our equity compensation.
Net Income Per Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in 2019 increased, due to the factors described
above, $12.7 million, or 1.0%, to $1,339.1 million from $1,326.4 million in
2018. The net gain on disposition of subsidiaries and repositioning charges,
after the allocated share of $6.9 million to noncontrolling interests, and the
additional income tax expense from the finalization of the provisional

                                       17
--------------------------------------------------------------------------------

estimate of the effect of the Tax Act, increased net income - Omnicom Group Inc.
in 2018 by $18.2 million. Diluted net income per share - Omnicom Group Inc.
increased 3.9% to $6.06 in 2019, compared to $5.83 in 2018, due to the factors
described above, as well as the impact of the reduction in our weighted average
common shares outstanding resulting from repurchases of our common stock, net of
shares issued for restricted stock awards, stock option exercises and the
employee stock purchase plan. The net gain on disposition of subsidiaries and
repositioning charges net of the additional income tax expense from the
finalization of the provisional estimate of the effect of the Tax Act, increased
diluted net income per share - Omnicom Group Inc. in 2018 by $0.08, and Non-GAAP
diluted net income per share - Omnicom Group Inc. increased 5.4% in 2019
compared to 2018 adjusted for these items.
Reconciliation of Non-GAAP Financial Measures
Non-GAAP operating profit, adjusted EBITA, Non-GAAP net income - Omnicom Group
Inc., and Non-GAAP diluted net income per share - Omnicom Group Inc. are
Non-GAAP financial measures which adjusts the 2018 financial measures for the
impact of the net gain on disposition of subsidiaries of $178.4 million and
repositioning charges of $149.4 million, a net increase of $3.9 million in
income tax expense, and an allocation of $6.9 million to noncontrolling
interests for these items. Accordingly, when comparing operating profit, EBITA,
net income - Omnicom Group Inc. and diluted net income per share - Omnicom Group
Inc. for 2019 to 2018, we also present the 2018 reported amounts and EBITA on
page 14 adjusted for the effects of these transactions. We believe these
Non-GAAP measures aid investors by providing additional insight into our
operational performance and help clarify trends affecting our business. For
comparability of reporting, management considers Non-GAAP measures in
conjunction with GAAP financial results in evaluating business performance.
These Non-GAAP financial measures presented should not be considered a
substitute for, or superior to, the measures of financial performance prepared
in accordance with GAAP.
The following table reconciles our financial results on page 14 to the Non-GAAP
Financial Measures (in millions, except per share amounts):
                                                                            

Year Ended December 31,

                                                                            2019                 2018
Non-GAAP operating profit and adjusted EBITA:
Net Income - Omnicom Group Inc.                                        $    1,339.1          $ 1,326.4
Net Income Attributed To Noncontrolling Interests                              96.8              114.1
Net Income                                                                  1,435.9            1,440.5
Income From Equity Method Investments                                           2.0                8.9
Income Tax Expense                                                            504.4              492.7
Income Before Income Taxes and Income From Equity Method Investments        1,938.3            1,924.3
Interest Expense                                                              244.3              266.4
Interest Income                                                                60.3               57.2
Operating profit                                                            2,122.3            2,133.5
Net gain on disposition of subsidiaries                                           -             (178.4)
Repositioning charges                                                             -              149.4
Non-GAAP operating profit                                                   2,122.3            2,104.5
Add back: Amortization of intangible assets                                    83.8              102.5
Adjusted EBITA                                                         $    2,206.1          $ 2,207.0
Non-GAAP net income - Omnicom Group Inc. and Non-GAAP diluted net
income per share
Omnicom Group Inc.:
Net income - Omnicom Group Inc.                                        $    

1,339.1 $ 1,326.4 Net pre-tax gain on disposition of subsidiaries and repositioning actions

                                                                           -              (29.0)

Net income tax benefit of gain on disposition of subsidiaries and repositioning actions

                                                             -              (25.0)
Allocation to noncontrolling interests                                            -                6.9
Net increase in tax expense related to the Tax Act                                -               28.9
Non-GAAP net income - Omnicom Group Inc.                               $    

1,339.1 $ 1,308.2

Diluted Net Income Per Share - Omnicom Group Inc.                      $    

6.06 $ 5.83 Net gain on disposition of subsidiaries, repositioning actions and impact of Tax Act

                                                                 -              (0.08)
Non-GAAP diluted net income per share - Omnicom Group Inc.             $       6.06          $    5.75

Weighted average shares                                                       220.9              227.6




                                       18

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RESULTS OF OPERATIONS - 2018 Compared to 2017 (in millions):

                                                                           Year Ended December 31,
                                                                           2018                2017
Revenue                                                               $  15,290.2          $ 15,273.6
Operating Expenses:
Salary and service costs                                                 11,306.1            11,227.2
Occupancy and other costs                                                 1,309.6             1,240.8
Net gain on disposition of subsidiaries                                    (178.4)                  -
Cost of services                                                         12,437.3            12,468.0
Selling, general and administrative expenses                                455.4               439.7
Depreciation and amortization                                               264.0               282.1
                                                                         13,156.7            13,189.8
Operating Profit                                                          2,133.5             2,083.8
Operating Margin - %                                                         14.0  %             13.6  %

Interest Expense                                                            266.4               248.6
Interest Income                                                              57.2                49.7

Income Before Income Taxes and Income From Equity Method Investments 1,924.3

             1,884.9

Income Tax Expense                                                          492.7               696.2
Income From Equity Method Investments                                         8.9                 3.5
Net Income                                                                1,440.5             1,192.2
Net Income Attributed To Noncontrolling Interests                           114.1               103.8
Net Income - Omnicom Group Inc.                                       $   

1,326.4 $ 1,088.4

On January 1, 2018, we adopted ASC 606, which was applied using the modified
retrospective method, where the cumulative effect of the initial application was
recognized as an adjustment to opening retained earnings at January 1, 2018.
Therefore, 2017 has not been adjusted and continues to be reported under FASB
ASC Topic 605, Revenue Recognition. The adoption of ASC 606 reduced revenue,
operating expenses and operating profit in 2018 by $146.1 million, $139.5
million and $6.6 million, respectively. The impact of the adoption on net income
- Omnicom Group Inc., diluted net income per share - Omnicom Group Inc. and the
consolidated financial statements was not material.
Non-GAAP Financial Measures - EBITA and EBITA Margin
We use EBITA and EBITA Margin as additional operating performance measures that
exclude the non-cash amortization expense of intangible assets, which primarily
consists of amortization of intangible assets arising from acquisitions. We
define EBITA as earnings before interest, taxes and amortization of intangible
assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are
Non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful
measures for investors to evaluate the performance of our business. Non-GAAP
financial measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with U.S. GAAP.
Non-GAAP financial measures reported by us may not be comparable to similarly
titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of net income -
Omnicom Group Inc. to EBITA and EBITA Margin for the for the periods presented
(in millions):
                                                                            Year Ended December 31,
                                                                            2018                2017
Net Income - Omnicom Group Inc.                                        $   1,326.4          $  1,088.4
Net Income Attributed To Noncontrolling Interests                            114.1               103.8
Net Income                                                                 1,440.5             1,192.2
Income From Equity Method Investments                                          8.9                 3.5
Income Tax Expense                                                           492.7               696.2
Income Before Income Taxes and Income From Equity Method Investments       1,924.3             1,884.9
Interest Expense                                                             266.4               248.6
Interest Income                                                               57.2                49.7
Operating Profit                                                           2,133.5             2,083.8
Add back: Amortization of intangible assets                                  102.5               113.8
Earnings before interest, taxes and amortization of intangible assets
("EBITA")                                                              $   2,236.0          $  2,197.6

Revenue                                                                $  15,290.2          $ 15,273.6
EBITA                                                                  $   2,236.0          $  2,197.6
EBITA Margin - %                                                              14.6  %             14.4  %



                                       19

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Revenue

In 2018, revenue increased $16.6 million, or 0.1%, to $15,290.2 million from
$15,273.6 million in 2017. Changes in foreign exchange rates increased revenue
$85.1 million, acquisition revenue, net of disposition revenue, reduced revenue
$326.6 million, and organic growth increased revenue $404.2 million. The impact
of changes in foreign exchange rates increased revenue 0.6%, or $85.1 million,
primarily resulting from the strengthening of the Euro and British Pound,
against the U.S. Dollar, partially offset by the weakening of the Brazilian
Real, Russian Ruble and Australian Dollar against the U.S. Dollar.
The components of revenue change in the United States ("Domestic") and the
remainder of the world ("International") were (in millions):
                                                Total                                                Domestic                                  International
                                          $                 %                $                 %                $                 %
December 31, 2017                   $ 15,273.6                          $ 8,196.9                          $ 7,076.7
Components of revenue change:
Foreign exchange rate impact              85.1             0.6  %               -               -  %            85.1             1.2  %
Acquisition revenue, net of
disposition revenue                     (326.6)           (2.1) %          (108.7)           (1.3) %          (217.9)           (3.1) %
Organic growth                           404.2             2.6  %            58.0             0.7  %           346.2             4.9  %
Impact of adoption of ASC 606           (146.1)           (1.0) %          (146.4)           (1.8) %             0.3               -  %
December 31, 2018                   $ 15,290.2             0.1  %       $ 7,999.8            (2.4) %       $ 7,290.4             3.0  %


The components and percentages are calculated as follows:
•The foreign exchange impact is calculated by translating the current period's
local currency revenue using the prior period average exchange rates to derive
current period constant currency revenue (in this case $15,205.1 million for the
Total column). The foreign exchange impact is the difference between the current
period revenue in U.S. Dollars and the current period constant currency revenue
($15,290.2 million less $15,205.1 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months
prior to the acquisition date by aggregating the comparable prior period revenue
of acquisitions through the acquisition date. As a result, acquisition revenue
excludes the positive or negative difference between our current period revenue
subsequent to the acquisition date and the comparable prior period revenue and
the positive or negative growth after the acquisition is attributed to organic
growth. Disposition revenue is calculated as if the disposition occurred twelve
months prior to the disposition date by aggregating the comparable prior period
revenue of dispositions through the disposition date. The acquisition revenue
and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact,
and the acquisition revenue, net of disposition revenue components from total
revenue growth, excluding the impact of the adoption of ASC 606.
•The impact of the adoption of ASC 606 is discussed above in the Accounting
Changes section.
•The percentage change is calculated by dividing the individual component amount
by the prior period revenue base of that component ($15,273.6 million for the
Total column).
Revenue and organic growth, excluding the impact of ASC 606, in our principal
regional markets were (in millions):
                                         Year Ended December 31,
                               2018             2017          $ Change             % Organic Growth
Americas:
North America              $  8,442.5       $  8,686.0       $ (243.5)                        0.4  %
Latin America                   457.5            494.8          (37.3)                        2.0  %
EMEA:
Europe                        4,375.4          4,127.9          247.5                         5.7  %
Middle East and Africa          304.4            314.6          (10.2)                       (2.9) %
Asia-Pacific                  1,710.4          1,650.3           60.1                         7.9  %
                           $ 15,290.2       $ 15,273.6       $   16.6                         2.6  %


Revenue in Europe, which includes our primary markets of the U.K. and the Euro
Zone, increased $247.5 million. Revenue in the U.K., representing 9.5% of total
revenue, increased $60.3 million. Revenue in Continental Europe, which comprises
the Euro Zone and the other European countries, representing 19.1% of total
revenue, increased $187.2 million.
In North America, modest growth in the United States was offset by a decrease in
revenue primarily resulting from the impact of the adoption of ASC 606, the
disposition of our specialty print media business in the second quarter of 2017
and negative performance in Canada. Organic revenue growth in the United States
was led by our CRM Consumer Experience, healthcare, advertising and media and
public relations businesses, and was partially offset by a decrease in our CRM
Execution &

                                       20
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Support discipline. The revenue increase in Europe resulted from strong organic
revenue in the region, particularly in France, Spain and the Czech Republic,
modest organic revenue growth in the U.K., and the strengthening of the Euro and
the British Pound against the U.S. Dollar in the first half of the year, which
was partially offset by disposition activity and negative performance in
Germany. The decrease in revenue in Latin America was primarily a result of the
weakening of the Brazilian Real against the U.S. Dollar. In Asia-Pacific,
organic growth in most countries in the region, especially Australia, China, New
Zealand and India, was partially offset by disposition activity.
In the normal course of business, our agencies both gain and lose business from
clients each year due to a variety of factors. The net change in 2018 was an
overall gain in new business. Under our client-centric approach, we seek to
broaden our relationships with all of our clients. Our largest client
represented 3.0% of revenue in 2018 and 2017. Our ten largest and 100 largest
clients represented 19.1% and 50.7% of revenue in 2018, respectively, and 19.6%
and 50.5% of revenue in 2017, respectively.
Revenue and organic growth by discipline were (in millions):
                                                                                Year Ended December 31,
                                                          2018                                                       2017                             2018 vs. 2017
                                                                    % of                                    % of                $                    % Organic
                                                  $                Revenue                $                Revenue            Change                   Growth
Advertising                                 $  8,281.0                54.2  %       $  8,175.9                53.6  %       $ 105.1                        2.9  %
CRM Consumer Experience                        2,629.6                17.1  %          2,615.9                17.1  %          13.7                        5.9  %
CRM Execution & Support                        1,891.6                12.4  %          2,135.8                14.0  %        (244.2)                      (2.7) %
Public Relations                               1,435.1                 9.4  %          1,411.4                 9.2  %          23.7                        1.8  %
Healthcare                                     1,052.9                 6.9  %            934.6                 6.1  %         118.3                        4.5  %
                                            $ 15,290.2                              $ 15,273.6                              $  16.6                        2.6  %



We provide services to clients that operate in various industry sectors. Revenue
by sector was:
                                         Year Ended December 31,
                                              2018               2017
Food and Beverage                                      13  %     13  %
Consumer Products                                       9  %     10  %
Pharmaceuticals and Health Care                        13  %     12  %
Financial Services                                      8  %      7  %
Technology                                              8  %      9  %
Auto                                                   10  %     10  %
Travel and Entertainment                                6  %      6  %
Telecommunications                                      5  %      5  %
Retail                                                  6  %      6  %
Other                                                  22  %     22  %


Operating Expenses
Operating expenses for 2018 compared to 2017 were (in millions):
                                                                    Year 

Ended December 31,

                                                  2018                                                         2017                                                   2018 vs. 2017
                                                            % of                                          % of                      $                  %
                                          $                Revenue                      $                Revenue                  Change            Change
Revenue                             $ 15,290.2                                    $ 15,273.6                                    $  16.6                 0.1  %
Operating Expenses:
Salary and service costs              11,306.1                73.9  %               11,227.2                73.5  %                78.9                 0.7  %
Occupancy and other costs              1,309.6                 8.6  %                1,240.8                 8.1  %                68.8                 5.5  %
Net gain on disposition of
subsidiaries                            (178.4)               (1.2) %                      -                   -  %              (178.4)
Cost of services                      12,437.3                                      12,468.0                                      (30.7)
Selling, general and administrative
expenses                                 455.4                 3.0  %                  439.7                 2.9  %                15.7                 3.6  %
Depreciation and amortization            264.0                 1.7  %                  282.1                 1.8  %               (18.1)               (6.4) %
                                      13,156.7                86.0  %               13,189.8                86.4  %               (33.1)               (0.3) %
Operating Profit                    $  2,133.5                14.0  %             $  2,083.8                13.6  %             $  49.7                 2.4  %



                                       21

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In the third quarter of 2018, we disposed of certain businesses, primarily in
our CRM Execution & Support discipline, and recorded a net gain of $178.4
million. Also, during the third quarter, we took certain repositioning actions
in an effort to continue to improve our strategic position and achieve operating
efficiencies, and we recorded charges of $149.4 million for incremental
severance, office lease consolidation and termination, asset write-offs and
other charges. See Note 13 to the consolidated financial statements. The impact
of the repositioning actions and net gain on sale of subsidiaries on operating
expenses for 2018 was (dollars in millions):
                                                                                Increase (Decrease)
                                                                                      Net Gain on
                                                            Repositioning            Disposition of
                                                               Actions                Subsidiaries               Total
Salary and service costs                                   $       73.7          $             -              $   73.7
Occupancy and other costs                                          73.5                        -                  73.5
Net gain on disposition of subsidiaries                               -                   (178.4)               (178.4)
Cost of services                                                  147.2                   (178.4)                (31.2)
Selling, general and administrative expenses                        2.2                        -                   2.2
Depreciation and amortization                                         -                        -                     -
                                                           $      149.4          $        (178.4)             $  (29.0)


Operating expenses, which include the net gain from the disposition of
subsidiaries and the repositioning charges, as described above, decreased $33.1
million, in 2018 compared to 2017. Salary and service costs, which tend to
fluctuate with changes in revenue, increased $78.9 million, or 0.7%, in 2018
compared to 2017. The year-over-year increase primarily reflects the incremental
severance and other charges of $73.7 million incurred in connection with the
repositioning actions taken in the third quarter of 2018. Occupancy and other
costs, which are less directly linked to changes in revenue than salary and
service costs, increased $68.8 million, or 5.5%, in 2018 compared to 2017. The
year-over-year change reflects a decrease of $4.7 million, which was offset by
$73.5 million of repositioning charges primarily related to office lease
consolidation and termination actions taken in the third quarter of 2018.
Operating margin increased year-over-year to 14.0% from 13.6% and EBITA margin
increased year-over-year to 14.6% from 14.4%. The net gain on disposition of
subsidiaries and repositioning expenses, increased operating profit and
operating margin year-over year by $29.0 million and 0.2%, respectively.
Net Interest Expense
Net interest expense increased $10.3 million year-over-year to $209.2 million in
2018. Interest expense on debt increased $17.4 million to $241.9 million in
2018, primarily due to a reduced benefit from the fixed-to-floating interest
rate swaps resulting from higher rates on the floating rate leg. Our long-term
debt portfolio at December 31, 2018, after taking into consideration our
outstanding interest rate swaps, was approximately 75% fixed rate obligations
and 25% floating rate obligations and was unchanged from December 31, 2017. A
discussion of our interest rate swaps is included in Note 7 to the consolidated
financial statements. Interest income in 2018 increased $7.5 million
year-over-year to $57.2 million due to higher interest earned on the cash held
by our international treasury centers.
Income Taxes
Our effective tax rate for 2018 decreased year-over-year to 25.6% from 36.9% in
2017. The decrease was primarily attributable to the reduction of the U.S.
federal statutory income tax rate to 21% from 35% resulting from the Tax Act.
Income tax expense in 2018 was reduced by approximately $19 million, primarily
as a result of the successful resolution of foreign tax claims and $7.4 million
related to the excess tax benefits from share-based compensation.
Additionally, income tax expense for 2018 reflects the following items recorded
in the third quarter of 2018 (in millions):
                                                                                  Increase (Decrease)
                                                                    Income Before Income
                                                                           Taxes                Income Tax Expense
Net gain on disposition of subsidiaries                             $       178.4              $           11.0
Repositioning actions                                                      (149.4)                        (36.0)
Adjustment to provisional effect of the Tax Act                                 -                          28.9
                                                                    $        29.0              $            3.9


The net gain resulting from the net disposition of subsidiaries reflects
favorable local tax rates applied to certain non-U.S. gains. The tax benefit on
the repositioning actions was calculated based on the jurisdictions where the
charges were incurred and reflects the likelihood that we will be unable to
obtain a tax benefit for all charges incurred. Further, in 2018 we recorded
additional income tax expense of $28.9 million reflecting the finalization of
the provisional estimate of the effect of the Tax Act recorded in 2017 (see Note
11 to the consolidated financial statements).

                                       22
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Net Income Per Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in 2018 increased, due to the factors described
above, $238.0 million, or 21.9%, to $1,326.4 million from $1,088.4 million in
2017. The net gain on disposition of subsidiaries and repositioning charges,
after the allocable share of $6.9 million to noncontrolling interests, and the
additional income tax expense from the finalization of the provisional estimate
of the effect of the Tax Act, increased net income - Omnicom Group Inc. $18.2
million. Diluted net income per share - Omnicom Group Inc. increased 25.4% to
$5.83 in 2018, compared to $4.65 in 2017, due to the factors described above, as
well as the impact of the reduction in our weighted average common shares
outstanding resulting from repurchases of our common stock, net of shares issued
for restricted stock awards, stock option exercises and the employee stock
purchase plan. The net gain on disposition of subsidiaries and repositioning
charges net of the additional income tax expense from the finalization of the
provisional estimate of the effect of the Tax Act, increased diluted net income
per share - Omnicom Group Inc. $0.08.
LIQUIDITY AND CAPITAL RESOURCES
Cash Sources and Requirements
Our primary liquidity sources are our operating cash flow, cash and cash
equivalents and short-term investments. Additional liquidity sources include our
$2.5 billion multi-currency revolving Credit Facility, expiring on July 31,
2021, uncommitted credit lines aggregating $1.3 billion, the ability to issue up
to $2 billion of commercial paper and access to the capital markets. Our
liquidity funds our non-discretionary cash requirements and our discretionary
spending.
Borrowings under our credit facilities may use LIBOR as the benchmark interest
rate. The LIBOR benchmark rate is expected to be phased out after the end of
2021. We do not expect that the discontinuation of the LIBOR rate will have a
material impact on our liquidity or results of operations.
Working capital is our principal non-discretionary funding requirement. In
addition, we have contractual obligations related to our long-term debt
(principal and interest payments), recurring business operations, primarily
related to lease obligations, and contingent purchase price obligations
(earn-outs) from acquisitions. Our principal discretionary cash spending
includes dividend payments to common shareholders, capital expenditures,
strategic acquisitions and repurchases of our common stock. We typically have a
short-term borrowing requirement normally peaking during the second quarter of
the year due to the timing of payments for incentive compensation, income taxes
and contingent purchase price obligations. On January 1, 2019, we adopted ASC
842, which had a substantial impact on total assets and liabilities, but had no
impact on our results of operations, cash flows or equity. The adoption of ASC
842 will not have a significant impact on our non-discretionary funding
requirement. Based on past performance and current expectations, we believe that
our operating cash flow will be sufficient to meet our non-discretionary cash
requirements and our discretionary spending for the next twelve months.
Cash and cash equivalents increased $653.3 million from December 31, 2018. The
components of the increase, including the net increase from our refinancing
activities, were:
                                              Sources
Cash flow from operations                                                               $ 1,856.0
Less: Increase in operating capital                                                        (125.1)
Principal cash sources                                                                    1,730.9
                                                Uses
Capital expenditures                                                  $ (102.2)
Dividends paid to common shareholders                                   

(564.3)

Dividends paid to noncontrolling interest shareholders                   

(97.3)

Acquisition payments, including payment of contingent purchase price obligations and acquisition of additional noncontrolling interests, net of cash acquired

(124.1)

Repurchases of common stock, net of proceeds from stock plans (603.7) Principal cash uses

                                                                      (1,491.6)
Principal cash sources in excess of principal cash uses                                     239.3
Foreign exchange rate changes                                                                50.2
Other net financing and investing activities                                                238.7
Increase in operating capital                                                               125.1
Increase in cash and cash equivalents                                                   $   653.3




                                       23

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Total principal cash sources and uses are Non-GAAP liquidity measures. These
amounts exclude changes in working capital and other investing and financing
activities, including commercial paper issuances and redemptions used to fund
working capital changes. This presentation reflects the metrics used by us to
assess our sources and uses of cash and was derived from our consolidated
statement of cash flows. We believe that this presentation is meaningful to
understand the primary sources and uses of our cash flow and the effect on our
cash and cash equivalents. Non-GAAP liquidity measures should not be considered
in isolation from, or as a substitute for, financial information presented in
compliance with U.S. GAAP. Non-GAAP liquidity measures as reported by us may not
be comparable to similarly titled amounts reported by other companies.
Additional information regarding our cash flows can be found in our consolidated
financial statements.
On July 15, 2019, our $500 million 2019 Notes matured and were retired. On July
8, 2019, Omnicom Finance Holdings plc, or OFHP, a U.K.-based wholly owned
subsidiary of Omnicom, issued €1.0 billion of Euro Notes. The U.S. Dollar
equivalent of
the net proceeds from the issuance of the Euro Notes, after deducting the
underwriting discount and offering expenses, was $1.1 billion. The net proceeds
were used to retire the 2019 Notes, to redeem $400 million of our $1 billion
2020 Notes on August 1, 2019 and for general corporate purposes. In connection
with the partial redemption of the 2020 Notes, we recorded a net extinguishment
loss of $6.3 million in interest expense. As a result of the refinancing
activity, $4 billion of long-term debt is U.S. Dollar-denominated and $1.1
billion is Euro-denominated. At December 31, 2019, the remaining $600 million of
the 2020 Notes were classified as current.
Cash Management
Our regional treasury centers in North America, Europe and Asia manage our cash
and liquidity. Each day, operations with excess funds invest those funds with
their regional treasury center. Likewise, operations that require funds borrow
from their regional treasury center. The treasury centers aggregate the net
position which is either invested with or borrowed from third parties. To the
extent that our treasury centers require liquidity, they have the ability to
issue up to a total of $2 billion of U.S. Dollar-denominated commercial paper,
or borrow under the Credit Facility or the uncommitted credit lines. This
process enables us to manage our debt more efficiently and utilize our cash more
effectively, as well as manage our risk to foreign exchange rate imbalances. In
countries where we either do not conduct treasury operations or it is not
feasible for one of our treasury centers to fund net borrowing requirements on
an intercompany basis, we arrange for local currency uncommitted credit lines.
We have a policy governing counterparty credit risk with financial institutions
that hold our cash and cash equivalents and we have deposit limits for each
institution. In countries where we conduct treasury operations, generally the
counterparties are either branches or subsidiaries of institutions that are
party to the Credit Facility. These institutions generally have credit ratings
equal to or better than our credit ratings. In countries where we do not conduct
treasury operations, all cash and cash equivalents are held by counterparties
that meet specific minimum credit standards.
At December 31, 2019, our foreign subsidiaries held approximately $1.3 billion
of our total cash and cash equivalents of $4.3 billion. Most of the cash is
available to us, net of any foreign withholding taxes payable upon repatriation
to the United States.
At December 31, 2019, our net debt position, which we define as total debt,
including short-term debt, less cash and cash equivalents and short-term
investments decreased $398.8 million as compared to December 31, 2018. The
decrease in net debt is due primarily to the excess of cash sources over cash
uses of $239.3 million and an increase in operating capital of $125.1 million.
The components of net debt were (in millions):
                                                                December 31,
                                                            2019            2018
Short-term debt                                          $   10.1       $     8.1
Long-term debt, including current portion                 5,134.3         

4,883.7

Total debt                                                5,144.4         

4,891.8

Cash and cash equivalents and short-term investments      4,309.3         3,657.9
Net debt                                                 $  835.1       $ 1,233.9


Net debt is a Non-GAAP liquidity measure. This presentation, together with the
comparable U.S. GAAP liquidity measures, reflects one of the key metrics used by
us to assess our cash management. Non-GAAP liquidity measures should not be
considered in isolation from, or as a substitute for, financial information
presented in compliance with U.S. GAAP. Non-GAAP liquidity measures as reported
by us may not be comparable to similarly titled amounts reported by other
companies.


                                       24
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Debt Instruments and Related Covenants
In August 2019, we settled the outstanding $750 million fixed-to-floating
interest rate swap on our 3.65% Senior Notes due 2024, or 2024 Notes, and the
$500 million fixed-to-floating interest rate swap on our 3.60% Senior Notes due
2026, or 2026 Notes. On settlement we realized a net gain of $3.3 million that
is being amortized in interest expense over the remaining term of the 2024 Notes
and 2026 Notes (see Note 7 to the consolidated financial statements). As a
result of the settlement, our long-term debt portfolio consists entirely of
fixed rate debt. However, interest expense on the Euro Notes is subject to the
non-cash impact of foreign exchange rate changes.
Omnicom and its wholly owned finance subsidiary Omnicom Capital Inc., or OCI,
are co-obligors under all U.S. Dollar-denominated senior notes. The U.S.
Dollar-denominated senior notes are a joint and several liability of us and OCI,
and we unconditionally guarantee OCI's obligations with respect to the notes.
OCI provides funding for our operations by incurring debt and lending the
proceeds to our operating subsidiaries. OCI's assets primarily consist of cash
and cash equivalents and intercompany loans made to our operating subsidiaries,
and the related interest receivable. There are no restrictions on the ability of
OCI or us to obtain funds from our subsidiaries through dividends, loans or
advances. The U.S. Dollar-denominated senior notes are senior unsecured
obligations that rank equal in right of payment with all existing and future
unsecured senior indebtedness.
Omnicom and OCI have, jointly and severally, fully and unconditionally
guaranteed OFHP's obligations with respect to the Euro Notes. OFHP's assets
consist of its investments in several wholly owned finance companies that
function as treasury centers providing funding for various operating companies
in Europe, Brazil, Australia and other countries in the Asia-Pacific region. The
finance companies' assets consist of intercompany loans that they make or have
made to the operating companies in their respective regions and the related
interest receivables. There are no restrictions on the ability of Omnicom, OCI
or OFHP to obtain funds from their subsidiaries through dividends, loans or
advances. The Euro Notes and the related guarantees are senior unsecured
obligations that rank equal in right of payment with all existing and future
unsecured senior indebtedness of OFHP and each of Omnicom and OCI, respectively.
The Credit Facility contains financial covenants that require us to maintain a
Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more
than 3 times for the most recently ended 12-month period (EBITDA is defined as
earnings before interest, taxes, depreciation and amortization) and an Interest
Coverage Ratio of consolidated EBITDA to interest expense of at least 5 times
for the most recently ended 12-month period. At December 31, 2019, we were in
compliance with these covenants as our Leverage Ratio was 2.2 times and our
Interest Coverage Ratio was 10.4 times. The Credit Facility does not limit our
ability to declare or pay dividends or repurchase our common stock.
At December 31, 2019, our long-term and short-term debt was rated BBB+ and A2 by
S&P and Baa1 and P2 by Moody's. Our access to the commercial paper market and
the cost of these borrowings are affected by our credit ratings and market
conditions. Our long-term debt and Credit Facility do not contain provisions
that require acceleration of cash payments in the event of a downgrade in our
credit ratings.
Credit Markets and Availability of Credit
We typically fund our day-to-day liquidity by issuing commercial paper. In the
first half of 2019, we issued short-term debt in a private placement to reduce
our commercial paper issuances. This short-term debt was redeemed in the third
quarter. Additional liquidity sources include our Credit Facility and
uncommitted credit lines. At December 31, 2019, there were no outstanding
commercial paper issuances or borrowings under the Credit Facility or the
uncommitted credit lines.
Commercial paper activity was (dollars in millions):
                                                      Year Ended December 

31,

                                                2019           2018         

2017

Average amount outstanding during the year   $ 272.3       $   411.7       $   902.3
Maximum amount outstanding during the year   $ 825.0       $ 1,218.7       $ 1,769.8
Average days outstanding                         4.0             5.7        

13.0

Weighted average interest rate                  2.40  %         2.19  %     

1.29 %

We expect to continue issuing commercial paper to fund our day-to-day liquidity.
However, disruptions in the credit markets may lead to periods of illiquidity in
the commercial paper market and higher credit spreads. To mitigate any future
disruption in the credit markets and to fund our liquidity, we may borrow under
the Credit Facility or the uncommitted credit lines, or access the capital
markets if favorable conditions exist. We will continue to monitor closely our
liquidity and conditions in the credit markets. We cannot predict with any
certainty the impact on us of any future disruptions in the credit markets. In
such circumstances, we may need to obtain additional financing to fund our
day-to-day working capital requirements. Such additional financing may not be
available on favorable terms, or at all.


                                       25
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Contractual Obligations and Other Commercial Commitments
In the normal course of business, we enter into numerous contractual and
commercial undertakings. The following tables should be read in conjunction with
our consolidated financial statements. At December 31, 2019, our contractual
obligations were (in millions):
                                                                                                Obligation Due
                                                    Total
                                                  Obligation            2020            2021 - 2022         2023 - 2024         After 2024
Long-term debt:
Principal                                        $ 5,122.8          $   600.0          $  1,250.0          $    750.0          $ 2,522.8
Interest                                             701.6              152.1               240.6               175.6              133.3
Operating lease liability                          1,844.1              344.4               523.5               333.7              642.5
Finance lease liability                              145.6               49.7                69.0                23.0                3.9
Contingent purchase price obligations                107.7               29.5                54.8                23.4                  -
Liability for transition tax on accumulated
foreign earnings                                     123.6               11.6                23.1                47.6               41.3

Uncertain tax positions                              206.8               43.2                51.4                62.3               49.9
Defined benefit pension plans benefit obligation     293.5               10.4                29.8                40.6              212.7
Postemployment arrangements benefit obligation       146.0                8.7                18.6                17.7              101.0
                                                 $ 8,691.7          $ 1,249.6          $  2,260.8          $  1,473.9          $ 3,707.4


The operating lease liability and finance lease liability represent the
undiscounted future lease payments.
Certain acquisitions include an initial payment at closing and provide for
future additional contingent purchase price payments (earn-outs) that are
recorded as a liability at the acquisition date fair value. Subsequent changes
in the fair value of the liability are recorded in results of operations.
The liability for the transition tax on accumulated foreign earnings is payable
through 2026. See Note 11 to the consolidated financial statements for
additional information.
The liability for uncertain tax positions is subject to uncertainty as to when
or if the liability will be paid. We have assigned the liability to the periods
presented based on our judgment as to when these liabilities will be resolved by
the appropriate taxing authorities.
At December 31, 2019, the unfunded benefit obligation for our defined benefit
pension plans and postemployment arrangements was $375.2 million. In 2019, we
contributed $7.1 million to our defined benefit pension plans and paid $7.8
million in benefits for our postemployment arrangements. We do not expect these
payments to increase significantly in 2020.
At December 31, 2019, our commercial commitments were (in millions):
                                                                   

Commitment Expires

                                  Total
                               Commitment        2020        2021 - 2022      2023 - 2024      After 2024
Standby letters of credit     $      4.6       $  1.0       $      2.0       $      0.6       $     1.0
Guarantees                         120.6         55.4             57.1              4.7             3.4
                              $    125.2       $ 56.4       $     59.1       $      5.3       $     4.4


At December 31, 2019, there were no significant off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We manage our exposure to foreign exchange and interest rate risk through
various strategies, including the use of derivative financial instruments. We
use forward foreign exchange contracts as economic hedges to manage the cash
flow volatility arising from foreign exchange rate fluctuations. We may use
interest rate swaps to manage our interest expense and structure our long-term
debt portfolio to achieve a mix of fixed rate and floating rate debt. We do not
use derivatives for trading or speculative purposes. Using derivatives exposes
us to the risk that counterparties to the derivative contracts will fail to meet
their contractual obligations. We manage that risk through careful selection and
ongoing evaluation of the counterparty financial institutions based on specific
minimum credit standards and other factors.
We evaluate the effects of changes in foreign currency exchange rates, interest
rates and other relevant market risks on our derivatives. We periodically
determine the potential loss from market risk on our derivatives by performing a
value-at-risk analysis, or VaR. VaR is a statistical model that uses historical
currency exchange rate data to measure the potential impact on future earnings
of our derivative financial instruments assuming normal market conditions. The
VaR model is not intended to represent actual losses but is used as a risk
estimation and management tool. Based on the results of the model, we estimate
with

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95% confidence a maximum one-day change in the net fair value of our derivative
financial instruments at December 31, 2019 was not significant.
Foreign Currency Exchange Risk
In 2019, our international operations represented approximately 46% of our
revenue. Changes in the value of foreign currencies against the U.S. Dollar
affect our results of operations and financial position. For the most part,
because the revenue and expenses of our foreign operations are denominated in
the same local currency, the economic impact on operating margin is minimized.
The effects of foreign currency exchange transactions on our results of
operations are discussed in Note 2 to the consolidated financial statements.
We operate in all major international markets including the Euro Zone, the U.K.,
Australia, Brazil, Canada, China and Japan. Our agencies transact business in
more than 50 different currencies. As an integral part of our global treasury
operations, we centralize our cash and use multicurrency pools to manage the
foreign currency exchange risk that arises from imbalances between subsidiaries
and their respective treasury centers from which they borrow or invest funds. In
addition, there are circumstances where revenue and expense transactions are not
denominated in the same currency. In these instances, amounts are either
promptly settled or hedged with forward foreign exchange contracts. To manage
this risk, at December 31, 2019 and 2018, we had outstanding forward foreign
exchange contracts with an aggregate notional amount of $284.2 million and $86.1
million, respectively. At December 31, 2019 and 2018, the net fair value of the
forward foreign contracts was not material (see Note 20 to the consolidated
financial statements).
Foreign currency derivatives are designated as economic hedges; therefore, any
gain or loss in fair value incurred on those instruments is generally offset by
decreases or increases in the fair value of the underlying exposure. By using
these financial instruments, we reduce financial risk of adverse foreign
exchange changes by foregoing any gain which might occur if the markets move
favorably. The terms of our forward foreign exchange contracts are generally
less than 90 days.
Interest Rate Risk
We may use interest rate swaps to manage our interest cost and structure our
long-term debt portfolio to achieve a mix of fixed rate and floating rate debt.
In August 2019, we settled the outstanding fixed-to-floating interest rate swaps
(see Note 7 to the consolidated financial statements). As a result of the
settlement, our long-term debt portfolio consists entirely of fixed rate debt.
Credit Risk
We provide advertising, marketing and corporate communications services to
several thousand clients that operate in nearly every sector of the global
economy and we grant credit to qualified clients in the normal course of
business. Due to the diversified nature of our client base, we do not believe
that we are exposed to a concentration of credit risk as our largest client
represented 3.0% of revenue in 2019. However, during periods of economic
downturn, the credit profiles of our clients could change.
In the normal course of business, our agencies enter into contractual
commitments with media providers and production companies on behalf of our
clients at levels that can substantially exceed the revenue from our services.
These commitments are included in accounts payable when the services are
delivered by the media providers or production companies. If permitted by local
law and the client agreement, many of our agencies purchase media and production
services for our clients as an agent for a disclosed principal. In addition,
while operating practices vary by country, media type and media vendor, in the
United States and certain foreign markets, many of our agencies' contracts with
media and production providers specify that our agencies are not liable to the
media and production providers under the theory of sequential liability until
and to the extent we have been paid by our client for the media or production
services.
Where purchases of media and production services are made by our agencies as a
principal or are not subject to the theory of sequential liability, the risk of
a material loss as a result of payment default by our clients could increase
significantly and such a loss could have a material adverse effect on our
business, results of operations and financial position.
In addition, our methods of managing the risk of payment default, including
obtaining credit insurance, requiring payment in advance, mitigating the
potential loss in the marketplace or negotiating with media providers, may be
less available or unavailable during a severe economic downturn.
Item 8. Financial Statements and Supplementary Data
See Item 15, "Exhibits, Financial Statement Schedules."
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.


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